I Need to Lay Off an Employee: How Do I Do It Legally?
Business conditions have changed. Revenue is down, a project ended, or you are restructuring. Whatever the reason, you need to reduce headcount and you want to do it properly. A layoff is different from a termination for cause. The process, the messaging, and some of the legal requirements are different too.
Here is what you need to know.
Layoff vs. Termination for Cause: Key Differences
A termination for cause happens because of employee performance or conduct. A layoff happens because of a business decision: the elimination of a role, a reduction in force, or a business closure. The distinction matters because:
• Layoffs generally do not involve progressive discipline documentation. The reason is business need, not performance.
• Laid off employees typically qualify for unemployment insurance
• The messaging in a layoff meeting is different. You are not telling someone they failed, you are telling them their role is being eliminated.
• Severance is more commonly offered in layoffs than in terminations for cause
WARN Act: Does It Apply to You?
The federal Worker Adjustment and Retraining Notification (WARN) Act requires employers with 100 or more employees to provide 60 days advance written notice of mass layoffs or plant closings. If you have fewer than 100 employees, the federal WARN Act does not apply to you.
However, many states have their own mini-WARN Acts with lower thresholds. For example, California’s WARN Act applies to employers with 75 or more employees. New York’s applies to 50 or more. Check your state’s law before proceeding with any significant reduction in force.
Selection Criteria Must Be Legally Defensible
How you decide who to lay off matters as much as the decision to reduce headcount. The criteria you use must be legitimate, documented, and applied consistently. Common legitimate criteria include: elimination of a specific role or function, last in/first out (LIFO) by seniority, performance ratings, and skills needed for the post-layoff organization.
Before finalizing your selection, conduct an adverse impact analysis: do the employees selected for layoff disproportionately fall into a protected class (older workers, women, employees of a particular race or national origin)? Disproportionate impact on a protected group does not automatically mean your layoff is illegal, but it creates significant risk that requires careful documentation of legitimate, non-discriminatory reasons.
OWBPA Note: If you are laying off employees age 40 or older and offering severance in exchange for a release of claims, the Older Workers Benefit Protection Act (OWBPA) requires specific disclosures, a 21-day consideration period, and a 7-day revocation period. Non-compliance makes the release unenforceable. Consult an employment attorney before offering severance to employees 40+ as part of a RIF.
For a broader look at the compliance foundations that protect small businesses from employment claims, see HR Policies Every Small Business Needs.
The Layoff Meeting
The meeting itself should be brief, direct, and compassionate. Have HR present. State clearly that the position is being eliminated due to a business decision, and is not a reflection of the employee’s performance. Provide the termination letter, final pay information, COBRA information, and any severance agreement.
Give the employee time to process and ask logistical questions. Do not attempt to explain or defend every business decision that led to this point. Keep the focus on what the employee needs to know to move forward.
Final Pay and Benefits
Final pay must be issued in accordance with your state’s requirements, and many states require immediate payment upon layoff. COBRA election notices must go out within 14 days of the qualifying event. Any agreed severance should be paid on the schedule specified in the agreement.
Communicate to the Remaining Team
After the layoff, communicate to your remaining employees promptly and honestly. You do not owe them a detailed explanation, but you do owe them clarity about the business situation, their own job security to the extent you can provide it, and the path forward. Uncertainty is more damaging to morale than difficult news delivered with honesty and dignity for the individual(s) impacted.
Get a Termination Checklist & Separation Policy
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Questions about this or other HR topics? Visit pragmatichrgroup.com for more resources.
